Printer Friendly

Social security: the national dilemma.

Social Security: The National Dilemma

By now you are all well aware of the significant political and programmatic conflicts confronting the Social Security system, specifically the Social Security Trust Fund. Although individuals may have often thought that the trust fund reserves were actually utilized to mask the looming budget deficit, federal executives and legislators have avoided any public affirmation. Society members should carefully watch this issue, particularly as many self-employed Americans and practitioners are just beginning to enjoy an era of greater Social Security tax equity.

The big questions now facing the Administration and congressional leaders alike are: Should the trust fund be removed from budget deficit reduction considerations? How can this be accomplished? How will America realistically encumber the necessary reduction of the "actual" budget liability? Is the current Social Security system really designed to handle the strain of an aging society? What can be done?

This widely disputed and controversial issue was single-handedly introduced by Senator Daniel P. Moynihan (D-NY) with the introduction of S. 2016. In a stunning display of classic and effective political maneuvering, Senator Moynihan's well-planned introduction of S. 2016 has now forced National leaders to run for cover.

Cleverly introduced during an election year, the S. 2016 was originally designed to inform American taxpayers of the covert misapplication of the Social Security funds to reduce the federal budget deficit. At first, the proposal was seen as politically amusing yet unrealistic. However, upon receiving unexpectedly widespread comment, Washington's politicians are now seriously reviewing all aspects of the proposal. Predominately viewed as unworkable, the proposal has forced political positions on all sides. The Bush Administration has acknowledged that the Social Security Trust Fund is actually utilized in budget considerations. Republican leaders are now reviewing the entire Social Security program and its ability to handle the projected financial drain of the retiring baby boomers in an effort to impede S. 2016's chances for passage. And the Democratic leadership is interested in capitalizing on the proposal during an election year as well as confronting America's "No New Taxes" President with an unavoidable tax hike.

Simply put, S. 2016, would repeal the payroll tax increase of January 1, 1990, and return the Social Security financing method to pay-as-you-go system, thus ultimately removing the Social Security Trust Fund reserves from future deficit reduction considerations. This approach, however, also imposes stringent tax burdens upon future generations.

The unforseen introduction of S. 2016 has ultimately opened Pandora's box to applicable solutions - most notably the payroll tax rate cut. Partisan lines have been drawn. House Majority leader Richard Gephardt (D-MO) is heading a Democratic Social Security Task Force to review several viable options for formal recommendation. Prevailing task force options include an income tax credit for lower and middle-income taxpayers, a one-year rollback in the Social Security payroll tax, and elimination of the tax rate bubble, raising the top marginal rate for the highest income tax bracket to 33%. Alternately, Republican leaders have formed a GOP "Task Force to Save Social Security" and several supplementary review committees.

During this election year all legislators seem to be in agreement that the Social Security reserves should be removed from further deficit reduction considerations. However, the dispute is now refocussing toward the proposed payroll tax rate cut. Anticipating significant difficulties in handling the unmasked budget deficit, many legislators find it difficult to fathom Mr. Moynihan's interest in reducing a prominent revenue source, not to mention the proposal's unforeseen strain on the Social Security System.

Joining in the fracas, the Congressional Budget Office reports that the passage of the Moynihan's proposal, without the development and implementation of a revenue offset method, would ultimately induce deficit growth, inflation and investment decline and spawn a higher trade deficit. Additionally, the Federal Reserve has labeled the Moynihan proposal as "counter-productive" to solving the nation's budget problems. Testifying before the Senate Finance Committee, Federal Reserve Chairman Alan Greenspan stated that Mr. Moynihan has undoubtedly raised a very important issue. However, "cutting Social Security taxes at this stage without anything else going on in the process is clearly the wrong solution." Both Senator Moynihan and Chairman Greenspan were members of the 1983 commission which recommended the Social Security payroll tax increase in an effort to build sufficient surplus that would finance the retiring Baby Boom Generation.

National leaders are not the only ones divided. Many national business organizations have carefully chosen their formal positions. Most notably the U.S. Chamber of Commerce and the National Federation of Independent Business have gone on record in support of a Social Security payroll tax-rate reduction, arguing that the current rate is financially burdensome and effectively dissuades investments. The Small Business Legislative Counsel which previously supported rate reduction effort is still in the process of formulating its position on the subject.

This issue is obviously confrontational, political and dear to each of our wallets. Although each American has a lot at stake, none should be more concerned and wary than self-employed individuals. Changes in the tax treatment of the Social Security payments of self-employeds, effective for the first time in 1990, establish a new era of tax equity between the tax rates of self-employeds and employer-employee. The 50% allowable deduction of Social Security payroll taxes utilized by self-employeds actually favors self-employed in many instances. Therefore, it follows that self-employed individuals should closely monitor the progression of legislation. Recognizing the "acutal" size of the true budget deficit and an interest in restricting a major revenue source (payroll taxes), the 101st Congress will become ever more greedy for revenue sources and deficit offset measures.

The National Society believes that the Social Security Trust Fund should Business have gone on record in support of a Social Security payroll tax-rate reduction, arguing that the current rate is financially burdensome and effectively dissuades investments. The Small Business Legislative Counsel which previously supported rate reduction effort is still in the process of formulating its position on the subject.

This issue is obviously confrontational, political and dear to each of our wallets. Although each American has a lot at stake, none should be tax equity treatment.
COPYRIGHT 1990 National Society of Public Accountants
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Berkery, Peter M.
Publication:The National Public Accountant
Article Type:column
Date:Apr 1, 1990
Words:1013
Previous Article:NSPA's Legislative Strategy Conferences - the what, when and how of legislative strategy.
Next Article:Public accountants and personal financial planning: do we really want to play second fiddle?
Topics:


Related Articles
A hidden risk.
Distributional implications of the social security spouse benefit.
Avoiding Generational War.
Vermont.
Contemporary Psychological Research on Social Dilemmas.
Teach your children.
Feeling right from wrong: brain's social emotions steer moral judgments.
The Social Security dilemma.
Notch octogenarians should beware of Social Security scam.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters